Unaffordable debt is a prime cause of business failure, like the “Phoenix” solution talked about in recent media – “Phoenix scams about to go down in flames”. Crooks may find that winding up one business and starting another works for them, but honest business owners can do a far better job that improves their credit standing and position in the community. Because business owners, particularly those with small to medium sized businesses, are often so busy running the business, they may not control debt properly at the same time.
1. Take the demand notice seriously. Many borrowers put it aside as an idiotic piece of paper that fantasizes about a huge amount of debt. It should be dealt with immediately.
2. Call on the very best bank borrowing consultant you can, because you may be certain that the bank has already employed the very best of lawyers and the sort of debt collectors who figuratively wield baseball bats with a mean hand, to collect every cent you owe.
3. Get out your loan documents and letters and read them carefully with your bank consultant. You will see, perhaps to your surprise, that you have pledged to deliver your children’s hearts on a plate to the bankers if you don’t pay up. If not their hearts certainly their happiness in terms of their home and security.
4. Look inquiringly into what has caused the problem. Over-spending? Over-expansion? Losses? The economy gone bad? Government policy? Cash-flow crisis? Drought or flooding rain? What has caused this situation? Only by finding out can it be readily rectified. Was it purchasing too much property or a sudden rise in interest rates?
5. Look for refinance. That means approaching every other bank lender to see which of them will refinance the loan. It is important to act on this with your banking consultant as soon as demand notices arrive. But don’t apply until the business has been worked over for improvement.
6. It is far better to have looked for re-finance as soon as the loan facility became difficult to manage or payments became overdue. The earlier you decide to seek re-finance the easier it will be to obtain, if you have a half-competent consultant.
7. Prepare a very attractive and appealing bank loan application. Your consultant can do this. It needs 5 or 6 good photos to put new banks in the picture on what you do. Use accurate “management” accounts and only put your tax return at the back. The tax act allows a lot of items to be written off that are not really expenses, including owners’ salaries and capital improvements. Your consultant will reconcile the tax return with management accounts.
8. Take severe cost-cutting measures and work hard to increase income in order to increase profits. Reduce capital equipment and stock on hand to provide extra cash. Don’t take little steps in this exercise. Be ruthless! Remove the dead wood and overcome lack of return.
9. Force the business to earn profits you can draw out. Put them into a special “savings” account to make major debt reductions later. Paying off small amounts as you go does not usually work because the bank will often let you draw them out again.
10. Sell non-essential assets to clear debt. It is surprising how much money can be generated by the serious identification of surplus assets that just lie around and the conversion of them into cash.
“Borrower beware, sign with care.” Greg Bloomfield